Are You Thinking to ‘Sell My Dental Practice’? 4 Things You Should Know
Selling a dental office is a major undertaking, so it is critical to prepare both financially and psychologically. Here are four things dentists should know before selling their clinics to make the transition simpler. If you operate a dentistry office, you’ve joined the ranks of almost 30 million other small business owners around the country. According to a recent census bureau study, small companies account for more than 99 percent of all employer firms in the United States, half of the workforce, and 60 percent of net new job creation. You, like other small business owners, have a slew of responsibilities, many of which extend beyond the day-to-day requirements of being a dentist, such as developing a budget, managing personnel, and acquiring new patients.
Everything should ideally result in a significant award when it comes time to sell your practice. Your business, like many dentists’, is your most valued asset, representing your retirement nest egg or a large chunk of it. This sort of liquidity crisis has far-reaching financial consequences.
Here are four critical things for you as a dental office owner to consider when you explore selling your business:
1. Begin Early
Trying to sell a dental office is not something that happens immediately. It’s a lengthy procedure that frequently depends on the owners’ financial plans being solidified. The underlying questions for most people are, “Can I afford to do this?” and “When can I do this?” For many, a short assessment of individual retirement, investment, and cash accounts will yield the answer. Others don’t have to wonder if it will happen since they have the assets. Simultaneously, they may have to reduce their existing lifestyle by downsizing their house, selling a vacation property, or giving up their country club membership.
2. Have Reasonable Expectations Regarding the Value of Your Profession.
Dentists, like other company owners, frequently overestimate the market worth of their practices. For example, they may anticipate a buyer to pay three to five times earnings before interest, taxes, depreciation, and amortization (EBITDA), which has typically been what privately owned small firms might expect in a sale. However, it is not always that straightforward. Consider the dentist who is between the ages of 55 and 65 and on the verge of retiring, and who most likely has patients in the same demographic. To put it simply, elderly patients are depreciating assets. That means there might be a significant difference between the practice’s paper value and what a buyer is ready to pay for it. One of the key reasons why dental business owners should not rely too much on a potential liquidity event to support their retirement is this.
3. Maintain Vital Equipment and Facilities in Good Working Order.
Building a turnkey organization that allows a new owner to step in without incurring major capital costs is a smart pattern for optimizing value. This means that sellers should not provide would-be acquirers any opportunities during sale discussions to argue that critical equipment and facilities are obsolete, giving them an opportunity to make a low-ball offer. However, practice owners should be aware that it is not required to spend a lot of money to make a lot of wholesale changes all at once. Once a selling schedule has been decided, owners should simply make modest adjustments to maintain critical hard assets up to date.
4. A Sale Does Not Automatically Signal the End of an Era.
After a sale, practice owners may be asked to continue on temporarily, even if just in a part-time capacity. This structure is very typical for many businesses to assure continuity, but it is especially prevalent for owners of professional services enterprises such as dentistry offices. This is because one of the most prevalent fears among potential buyers is that existing patients may be lost if the business is sold. Any cuts would reduce the value of a buyer’s freshly purchased asset. As a result, buyers can expect less upfront, which will be mitigated by incentives that reward owners for acting as a bridge between patients.
Regardless of the reason for your choice to sell your dental business, there are several aspects to consider. While this advice sheet provides an overview of crucial things to remember, the American Dental Association (ADA) has various video resources to assist you plan for and manage this important change. These resources, which were videotaped during talks at the Council on Dental Practice’s BIG Idea 2019: Transitions Conference, cover the following topics:
- Make a plan for your exit.
- Making a Plan and Getting Organized.
- Setting Reasonable Expectations
- Providing guidance to a prospective buyer.
- Collaboration with a Lawyer
- Structures for exiting.
- Employing Restrictive Covenants, Non-Disclosure Agreements, and Letters of Intent
- Valuations should be practiced.
- 15 Ways to Boost Practice Value Right Away
- Indicators of Key Performance.
- Marketing both inside and outside.
- How to Sell My Dental Practice in the Most Tax-Effective Way?
- What Exactly Are You Selling? And, last, how is it taxed?
- What Can You Expect to Make After Taxes and Other Sale Expenses?
- Tax Implications for Both Buyers and Sellers